In an extract from his latest blog, entitled ‘Lessons from the Phil, the General and Warren’, Michael Lipper unearths an overlooked area of the much-discussed Berkshire Hathaway annual letter which was published on February 25.
As most every investor knows, on Saturday morning Warren Buffett issued his annual letter portion of Berkshire Hathaway’s annual report. I believe very few of the media pundits caught what I believe is a very important affirmation to his and Charlie Munger’s thinking.
The letter revealed that Berkshire began a slow but deliberate program to eventually buy 80% of Pilot Flying J (PFJ), which has about 750 locations that we used to call truck stops.
I am sure that it is a good business, but to me it reinforces what has become a major tenet of their thinking in terms of many of the operations. They seem to be drawn to products that need to be shipped by trucks, trains, or pipelines.
While they do own some service companies beyond insurance and finance companies, it seems that goods production and transportation tend to be rather unique vehicles which are often built and owned by entrepreneurial families, which at their current stage are producing excess cash flow to their growing needs.
Most of these are domestically located. The greater volume they do, the more closely their results will parallel the Gross Domestic Product, but they will grow faster because of smarter use of leverage and freedom from normal corporate disciplines.
Michael Lipper is a former president of the New York Society for Security Analysts, he was president of Lipper Analytical Services Inc. the home of the global array of Lipper indexes, averages and performance analyses for mutual funds. His blog can be found here.